French Economy Contracted a Revised 1.1% in the Fourth Quarter

By Sandrine Rastello

March 27 (Bloomberg) -- France’s economy contracted the most in more than three decades in the fourth quarter as companies slashed inventories and pared investment in the face of the worst recession since World War II.

Gross domestic product fell a revised 1.1 percent from the third quarter, when it rose 0.1 percent, Paris-based statistics office Insee said. The decline is the steepest since the final quarter of 1974. Insee initially estimated a fourth-quarter contraction at 1.2 percent in a preliminary report on Feb. 13.

Recent data suggest the economy has continued to deteriorate this year, damping manufacturers’ and consumers’ confidence as companies slash production and jobs to weather the global economic slump. Insee expects France’s GDP to shrink 1.5 percent this quarter and 0.6 percent over the following three months.

“Investment is going to drop further in the first quarter,” said Laurence Boone, chief French economist at Barclays Capital in Paris. “Spending had its last decent quarter as the marked deterioration of the labor market is starting to hurt.”

Companies’ profit margins declined and households boosted their savings, the report also showed.

From a year earlier, the French economy shrank 0.9 percent in the fourth quarter, less than the 1.0 percent drop initially forecast. Exports fell 3.5 percent from the third quarter, while imports were down 2.3 percent, Insee said. Corporate investment dropped 2 percent after it was flat the previous three-months. Companies’ paring of inventories shaved growth by 0.8 point, Insee said. Consumer spending rose 0.3 percent.

Job Cuts

Shoppers’ support may not last as the worsening labor market is offsetting the positive impact of slowing inflation. Job cuts in France by companies from Continental AG to American Express Co. have been multiplying across the country, prompting as many as 3 million people to take to the streets last week to protest the government’s response to the economic slump.

President Nicolas Sarkozy in December introduced 26 billion euros ($35.3 billion) in stimulus measures, most aimed at buoying investment. In February, he pledged an additional 2.6 billion euros in spending and tax cuts for jobseekers.

Companies’ profit margins narrowed to 36.4 percent from 37.5 percent in the third quarter, Insee’s report showed.

To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net.